Norfolk Sells Bonds Worth $91 Million

City Gets Good Rate Despite Market's Economic Fears

The city of Norfolk, braving the most jittery bond market in years, sold $91 million of tax-exempt bonds Tuesday, a city official said.

The bonds, which are basically IOUs of the city, come due in one to 20 years and yield between 6.1 percent and 7.3 percent.

They represent an average borrowing cost for Norfolk of 7.057 percent, according to acting city finance director John Cownack.

Norfolk's last bond sale, in May 1989, had an average borrowing cost of 6.76 percent.

"It's a pretty good rate," said Cownack, "We're very pleased."

He said city officials had been worried about trying to sell bonds at a time when traders are skeptical about prospects for a budget agreement to cut the federal deficit, and fears of a war in the Persian Gulf are keeping interest rates high.

"It was a scary time to sell bonds," he said.

But, breaking ranks with most other Virginia cities and counties, Cownack and the city's financial advisors reckoned things could only get worse.

"Our advisors basically said it would be great if we could hold out for 14 months or two years, but if we were only talking about a delay of five or six months, rates could get even higher," Cownack said.

The city moved quickly to sell the bonds, taking just six weeks instead of the usual 90 days to do all the paperwork required, Cownack said.

Cownack said First Boston won the contract to handle the bond sale in competitive bidding Tuesday morning. The average borrowing cost of the First Boston bid was 3/100ths of a percentage point below bids of four other groups, he said.

Richmond bond dealers said the First Boston bid was unusually aggressive.

"But it seems to be going well, Norfolk's a good name, double-A, and it doesn't come to the market all that often," said Daniel A. Conrad, a vice president at Sovran Investment Corp., who heads the bank's Richmond municipal bond trading desk.

He said First Boston seemed to be placing the bond with investors fairly quickly.

Bond market dealers say they believe at least one major insurance firm snapped up most of the bonds that come due in 15 year's time.

Income from Virginia city and county bonds is exempt from both state and federal income taxes, which allows local governments to borrow money for lower rates than the federal government pays.

Norfolk will use the bonds to pay for its capital improvement program for fiscal years 1990 and 1991, including $17 million worth of water projects, an $8 million parking garage and $6 million of sewer projects.